Keynote Address to CITI-FT Financial Education Summit 2013

It is an honor to speak at a conference that marks the 10th anniversary
of an event held here in Hong Kong in 2004. One had to be visionary back then
to think of financial capability and I want to acknowledge the wisdom of the
Citi Foundation.

Robert Lucas, a Nobel Prize economist from the University of Chicago, once
said that once you start thinking about economic growth, you cannot stop
thinking about it. For me, this has been true about financial literacy. I have
worked on the subject of financial literacy for more than 10 years and I want
to use my short remarks today to talk about this important component of
financial capability.

Financial literacy is a basic but essential skill for living in the 21st
century. It is what reading and writing was for previous generations; somebody
who could not read and write could not fully participate in society, just as
today, somebody who is not financially literate cannot fully participate in the
modern economy. We need to equip people with the basic skills necessary to live
in the modern world and this has to start at school. I want to emphasize four
reasons why we need financial literacy in school:

1.The young face formidable challenges. One challenge is
how to deal with an aging society. My Center organized a Global Financial
Literacy Summit some weeks ago. It was held in Amsterdam in partnership with
the World Pensions Summit. The discussion on planning for retirement was
considered in combination with financial literacy in schools. In other words,
preparing for retirement can be thought of as starting in school, where young
people can learn the basics of financial decision making. On a selfish note,
one of the reasons to focus on the young is that if they do not do well
financially, they will move back in with us!

2.Equality. Financial literacy is very unequally
distributed in the population. A group that is particularly vulnerable is
women. In all of the surveys I have done across countries, women always come
out as the group that knows the least in terms financial literacy. We need to
have financial literacy in schools to make sure women have equal access.

3.Financial literacy is at the basis of democracy. How
can we ask people to vote on economic reforms that they don’t understand? This
is to say that financial literacy is not just about one’s personal finances;
individual knowledge and decisions can impact the community, the country, and
the global economy. We need to update the curricula to acknowledge this.

4.Finally, we need financial literacy in schools because
this is where young people are, and it is more scalable and cheaper to impart
this knowledge while the young are still in school.

As evidence
that financial literacy is now considered a basic skill, like reading and
writing, in 2012 the OECD Programme for International Student Assessment (PISA)
added financial literacy to the list of topics it measures when it evaluating
the knowledge of 15-year-olds. I look forward to the release of the financial
literacy data, expected in June 2014, but for now I am happy to report that
Hong Kong did extremely well in mathematics, reading, and science. These
findings have been just released and Honk Kong came out in the top five in each
topic (3rd in math, 2nd in reading, and 2nd in
science)

I want to focus on financial literacy today because recent work in the
United States has tried to dismiss its importance. I need to mention to you
that financial education in US schools normally consists of a one-semester
course taught in the senior year of high school (and often by teachers who report—when
surveyed—that they do not feel qualified to teach the topic). I do not need to
see an evaluation to predict that this sort of education does not work. We do
not learn anything—not math, geography, history—by taking one course at the end
of high school. We need to start early and build upon basic knowledge. We need
experimentation, new ideas, and the help of technology. We need initiatives
like the ones I heard about on the bus to dinner and during dinner last night.
And we need to evaluate them to see what works, and then do more of what works.

To
summarize, the points I have touched upon are . . .

-Financial literacy/education

-Focus on women

-The importance of evaluation

You may say Wait, but these are the topics
we discussed ten years ago. Have we come full circle? Progress has been
made, but my message today is that there is still work to do.

I think we may find inspiration from a city like Hong Kong. I am blown away
by it. If a city can find a way to grow so much and so fast, if it can build
these tall skyscrapers that light up at night to transform Hong Kong into a
city of light, surely we can find a way to tackle financial literacy. Welcome
back to this great city!

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About Me

Annamaria Lusardi is the Denit Trust Distinguished Scholar and Professor of Economics and Accountancy at the George Washington School of Business. Previously, she was the Joel Z. and Susan Hyatt Professor of Economics at Dartmouth College. She has taught at Dartmouth College, Princeton University, the University of Chicago Public Policy School, the University of Chicago Booth School of Business and the Graduate School of Business at Columbia University. From January to June 2008, she was a visiting scholar at Harvard Business School. She has advised the U.S. Treasury, the U.S. Social Security Administration, the Dutch Central Bank, and the Dartmouth Hitchcock Medical Center on issues related to financial literacy and saving. She is the recipient of the Fidelity Pyramid Prize, awarded to authors of published applied research that best helps address the goal of improving lifelong financial well-being for Americans. She holds a Ph.D. degree in Economics from Princeton University.